DEFR14A: Great Elm Group Amends Proxy, Proposes New Incentive Plan

Great Elm Group, Inc. filed an amendment to its 2025 Annual Stockholders Meeting proxy statement, updating committee compositions and proposing a new long-term incentive compensation plan.

Summary

• Great Elm Group, Inc. (the Company) filed an Amendment No. 1 to its definitive proxy statement for the 2025 Annual Stockholders Meeting scheduled for December 5, 2025.
• The primary purpose of the amendment is to update the expected composition of the Audit Committee and Compensation Committee of the Board of Directors.
• If director nominees are elected, David Schwartz is expected to be appointed to the Audit Committee, and Booker Smith is expected to be appointed to the Compensation Committee.
• Stockholders will vote on the election of eight director nominees, ratification of Deloitte & Touche LLP as the independent auditor for fiscal year ending June 30, 2026, a non-binding advisory vote on executive compensation, and approval of the 2025 Long-Term Incentive Compensation Plan.
• The 2025 Long-Term Incentive Compensation Plan, if approved, will replace the expiring 2016 Plan and authorize up to 5,000,000 shares for future grants, with an aggregate market value of $12.1 million based on the October 10, 2025 closing price of $2.42 per share.
• The Company expects the shares authorized under the 2025 Plan to last for approximately 4.5 years.
• As of the Record Date (October 10, 2025), 33,348,987 shares of common stock were outstanding.
• The Company disclosed various related party transactions, including PIK Notes held by affiliates of directors and a recent $9 million share purchase by Woodstead, which also resulted in a $270,000 finders fee to Imperial Capital, an affiliate of the Chairman and CEO.

Sentiment

Score: 6

Explanation: The filing is largely procedural, focusing on corporate governance and a new incentive plan. The proposed incentive plan has positive governance features and aims to align interests. However, the presence of numerous related party transactions and a past delinquent filing by a major shareholder introduce some caution, leading to a neutral-to-slightly positive sentiment.

Positives

• The proposed 2025 Long-Term Incentive Compensation Plan is designed to align management interests with stockholders, provide wealth creation opportunities, and encourage a long-term focus.
• The 2025 Plan includes good governance features such as fair market value grants, no repricing without stockholder approval, administration by an independent compensation committee, no evergreen feature, and a limit on non-employee director compensation ($500,000, or $750,000 for Board chair/vice chair).
• The Board of Directors recommends voting FOR all proposals, including the election of directors, ratification of the independent auditor, advisory approval of executive compensation, and approval of the 2025 Long-Term Incentive Compensation Plan.
• The Company maintains a robust corporate governance framework, including corporate governance guidelines, a Code of Business Conduct and Ethics, and independent board committees.

Negatives

• If the 2025 Long-Term Incentive Compensation Plan is not approved, the Company will be unable to maintain its current equity grant practices, potentially leading to a significant competitive disadvantage in attracting, retaining, and motivating talented individuals.
• The Company may be compelled to replace equity incentive awards with cash awards if the 2025 Plan is not approved, which may not align executive and employee interests with shareholders as effectively.
• A delinquent Section 16(a) report was noted for PC Elfun LLC, a beneficial owner of more than 10% of common stock, regarding its initial Form 3 filing.
• Significant related party transactions exist, including PIK Notes held by entities affiliated with Chairman and CEO Jason W. Reese and Director Matthew A. Drapkin, and a finders fee paid to an affiliate of the Chairman and CEO for a recent share purchase.

Risks

• Failure to approve the 2025 Long-Term Incentive Compensation Plan could hinder the Company's ability to attract, motivate, and retain key employees and directors, potentially impacting long-term success.
• The issuance of 5,000,000 shares under the 2025 Plan represents potential equity dilution for existing stockholders.
• The actual duration of the 2025 Plan (anticipated 4.5 years) could be shorter or longer depending on actual grant rates and changes in the Company's share price.
• Participants in the 2025 Plan face various federal income tax consequences, and the Company does not guarantee favorable tax treatment or liability for any tax, interest, or penalties incurred by participants.
• The Company's insider trading policy prohibits hedging or monetization transactions, trading in options/warrants/puts/calls, or short selling of Company securities by Covered Persons, indicating a risk of potential misuse of insider information if not strictly adhered to.

Future Outlook

The Company anticipates that the 5,000,000 shares authorized under the proposed 2025 Long-Term Incentive Compensation Plan will last for approximately 4.5 years, based on historical grant rates and current share price. The next advisory vote on executive compensation is expected to be held next year. For the fiscal year ending June 30, 2026, costs incurred under the shared services agreement with ICAM are expected to primarily relate to operational services.

Management Comments

• "We invite you to join us at the 2025 Annual Stockholders Meeting... Your vote is very important. Whether or not you plan to virtually attend the Annual Meeting, we urge you to vote and submit your proxies over the Internet or by mail as soon as possible." Jason W. Reese, Chairman and Chief Executive Officer.
• "Your vote and participation in our governance is very important to us. On behalf of our Board of Directors, thank you for your continued support." Jason W. Reese, Chairman and Chief Executive Officer.
• "The members of our Audit Committee and our Board of Directors believe the continued retention of Deloitte as our independent registered public accounting firm is in our and our stockholders best interest."
• "We believe our future success depends in part on our ability to attract, motivate, and retain high quality employees and directors and that the ability to provide equity-based and incentive-based awards under the 2025 Plan is critical to achieving this success."
• "The use of common shares as part of our compensation program is also important because equity-based awards are an essential component of our compensation for key employees, as they help link compensation with long-term stockholder value creation and reward participants based on service and/or performance."
• "Our Board believes that the number of shares underlying the 2025 Plan represents a reasonable amount of potential additional equity dilution."

Industry Context

This proxy statement amendment reflects standard corporate governance practices for publicly traded companies, focusing on board composition, executive compensation, and long-term incentive plans. The proposed 2025 Long-Term Incentive Compensation Plan is a common mechanism used across industries to align management and employee interests with shareholder value creation, particularly in competitive talent markets. The detailed disclosure of related party transactions is also a standard regulatory requirement for transparency in corporate dealings.

Management Changes

Corporate Governance

Legal Proceedings

• No new legal proceedings are mentioned. The filing notes a delinquent Section 16(a) report for PC Elfun LLC, a beneficial owner of more than 10% of common stock, regarding its initial Form 3 filing.

Related Party Transactions

• As of June 30, 2025, $35.1 million aggregate principal amount of PIK Notes were outstanding. Funds managed by Imperial Capital Asset Management, LLC (ICAM), an affiliate of Chairman and CEO Jason W. Reese, own approximately $8.3 million of these notes. Funds managed by Northern Right Capital Management, L.P., an affiliate of Director Matthew A. Drapkin, own approximately $7.8 million. Trusts affiliated with Director Eric J. Scheyer own approximately $0.8 million.
• ICAM has agreed not to convert its PIK Notes into common stock prior to November 10, 2026, and Northern Right and its managed funds have agreed not to convert prior to July 15, 2026.
• The Company invested $12.0 million and $24.0 million in GECC's common stock through special purpose vehicles, Prosper Peak Holdings, LLC (PPH) and Summit Grove Partners, LLC (SGP), respectively. Investors included Long Ball and Elm Haven LLC, with Long Ball managed by ICAM (an affiliate of Mr. Reese). Director nominee David Schwartz is indirectly invested in Long Ball, and Mr. Schwartz, Long Ball, and Director Mr. Drapkin are invested in Elm Haven.
• On August 27, 2025, the Company sold 4,000,000 shares of common stock to Woodstead Value Fund, L.P. for $9 million. In connection with this transaction, a finders fee of $270,000 was paid to Imperial Capital, an affiliate of Chairman and CEO Jason W. Reese.
• Great Elm Capital Management, LLC (GECM) has a shared services agreement with ICAM for back-office personnel, with costs of $0.5 million for fiscal year ended June 30, 2025.
• The Company has indemnification agreements with its directors and executive officers and has purchased director and officer indemnification insurance.

Stakeholder Impact

• Shareholders: Will vote on key corporate governance matters, including director elections, auditor ratification, executive compensation, and a new long-term incentive plan. The approval of the 2025 Plan could lead to equity dilution but aims to align management incentives with long-term shareholder value. Related party transactions may raise questions about potential conflicts of interest.
• Employees/Management: The proposed 2025 Long-Term Incentive Compensation Plan is crucial for attracting, motivating, and retaining high-quality employees and directors, linking their compensation to long-term Company success. Executive compensation details are provided for transparency.
• Directors: Changes in committee assignments reflect ongoing board evolution and the integration of new nominees. Director compensation structure is outlined.
• Auditors: Deloitte & Touche LLP is proposed for ratification as the independent registered public accounting firm, indicating continuity in financial oversight.

Next Steps

• Hold the 2025 Annual Stockholders Meeting online on Friday, December 5, 2025, at 8:30 a.m. Eastern Standard Time.
• Stockholders will vote on the election of directors, ratification of Deloitte & Touche LLP as the independent auditor, an advisory vote on executive compensation, and the approval of the 2025 Long-Term Incentive Compensation Plan.
• The Company expects to announce preliminary voting results at the Annual Meeting and publish final results in a Current Report on Form 8-K within four business days following the meeting.
• If approved by stockholders, the Company intends to file a Registration Statement on Form S-8 for the issuance of shares under the 2025 Plan as soon as practicable.
• The next advisory vote to approve the compensation of named executive officers is expected to be held next year.

Key Dates

Keywords

Great Elm Group, GEG, Proxy Statement, Annual Meeting, Corporate Governance, Executive Compensation, Long-Term Incentive Plan, Equity Awards, Board of Directors, Audit Committee, Compensation Committee, SEC Filing, Stockholder Vote, Related Party Transactions, PIK Notes, Woodstead, Deloitte & Touche, Form 10-K, Shareholder Return